Flight Centre in Asian tour business partnership

Jamie Freed

Flight Centre Travel Group will create an Asian tour business in partnership with Vietnam-based Buffalo Tours in a move that fits with the travel agency's strategy of expanding through vertical integration to boost its revenue.

Flight Centre and Buffalo Tours owner Thien Minh Group will each contribute an initial $US1.5 million of capital into a new joint venture, with the Australian company to hold a 49 per cent stake and equal board representation.

Flight Centre managing director Graham Turner said the joint venture would give his company access to a new revenue stream.

"We are effectively gaining a larger share of wallet by bringing business that was previously transacted externally in-house," he said. "In the longer term, there is also opportunity to expand the Buffalo Tours product range and, given that the model is replicable, grow the business organically."

This is not Flight Centre's first move into the tour operator business. In 2009, it acquired 100 per cent of UK and Ireland tour operator Back-Roads Touring. Over the last year, Mr Turner has flagged he was interested in making more such acquisitions.

The joint venture will operate and expand the existing Buffalo Tours businesses in Thailand, Laos, Cambodia and Myanmar, although the Vietnam touring business will be excluded.

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The joint venture will also progressively launch new Buffalo Tours businesses in Indonesia, Malaysia, Singapore, Hong Kong, China and Japan to give the business a comprehensive Asian footprint.

Buffalo Tours will also become Flight Centre's preferred destination management company in all of the chosen markets. The travel agent had previously had relationships with a number of local tour operators.

Buffalo Tours, which was established in 1994, offers customised and private guided tours. The operator plans itineraries and can tailor tours to feature highlights of the countries being visited within the duration chosen by the customer. It is a 2014 winner of a "Certificate of Excellence" from TripAdvisor.

The agreement between Flight Centre and Thien Minh Group is subject to certain conditions being met and is expected to see the Thailand, Laos, Cambodia and Myanmar businesses formally transferred into the joint venture in the second half of the calendar year.

Buffalo Tours, which was established in 1994, offers customised and private guided tours. The operator plans itineraries and can tailor tours to feature highlights of the countries being visited within the duration chosen by the customer. It is a 2014 winner of a "Certificate of Excellence" from TripAdvisor.

The joint venture comes after Flight Centre last week warned it would report full-year underlying profit before tax of $370 million to $380 million, the low to mid-point of its previous market guidance, due to a tough trading environment in the Australian leisure business and disappointing leisure results in Canada.

Deutsche Bank analyst Michael Simotas said the update had confirmed Flight Centre was not immune from the current consumer malaise in Australia, but history suggested volumes should rebound quickly after a period of weakness and April/May had likely been impacted by sales moving forward due to the Easter/ANZAC day holiday period.